Innovation in BRICS Busines - Way of growth and sustainability strategy

Chirinos Adriana
Wuhan University of Technology, School of Management, Wuhan 430070 P.R. China
（E-mail:adrianachirinos20@hotmail.com)

Abstract: The last decade has presented a new global economic scenario lead by emerging markets. BRICS countries (comprised by Brazil, Russia, India, China and South Africa) have been at the forefront in this phenomenon. During these years, the real Gross Domestic Product (GDP) growth of the world (annual percent change - A% c) averages 3,83. It is worth mentioning that the above referenced countries reached 6,01 (157,02% more); and Advanced Economies - not yet recovered since the last financial crisis - reached 1,6 (47,78%). Meanwhile, different measuring models have found that in the world, just the top 20% of the population controls over 70% of the global revenue. These economies have been growing as well. The importance of this investigation is answering the questions: Are they reversing this lack of equality trend? And, Would be relevant to add equity in the development agenda?. This paper offers an analysis of these points and studies them as a strategy for sustainability and continuous growth.
Key words: BRICS countries growth; National income distribution; Equity in the development agenda.

1. Introduction BRICS Countries are leading the growth of the economy in the world, and have done so for over 10 years. The International Monetary Fund (IMF) projected that from 2013 to 2017 it will maintain its growth at least 26% above World Growth GDP. Note: GDP, will be the measure utilized in this paper when referring to growing economies. This information comes from the IMF data base and calculations made by the author. Income distribution refers to how a nation’s total GDP is distributed among its population (Sullivan and Sheffrin, 2003). This distribution is typically unequal, and becomes an issue which has been avoided for many years. In 2004, this trend changed when the International Labor Organization (ILO) published: "A Fair Globalization.” After this occurred, other major development-related institutions followed suit and began posting about inequality as well. Currently, there is a unanimous concern in international institutions about that issue and it has become clear that the issue of inequality must be incorporated in discussions about development. This paper analyzes: (i) Distribution of income or consumption per country, (ii) Gini Index and, (iii) Understanding the background of these countries, this research also incorporates information regarding poverty per country. All the data comes from the World Bank and the calculations made by the author. This paper also discusses the negative consequences of rising inequality and defines the importance of adding equity in the development agenda, as a strategy for sustainability and long-term growth.

2. Growth in BRICS Countries The Figure 1, shows the argument that as introduces the research and salient facts may be mentioned; (i) 2003 and 2004, emerging economies (BRICS) began a significant consolidated period of growth (and were already doing so), during these two years, their GDP increased from 5,64 to 7,04 (ii) 2008 (September), the outbreak of the global crisis obviously affects everyone. BRICS fell in 2009 to 1,1 (fall but remain in positive), the world economy: -0,6 and Developing Economies: -3,5 (iii) After the global crisis, very slow recovery in developed economies and promising trend showing the BRICS economies. This graph (figure 1), also evidenced the situation and positioning: BRICS, Advanced Economies and World, from 1991 (since all these countries have data) to 2017, from 2013 to 2017 are projections.
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Figure 1 Real GDP Growth (Annual percent change) 1991 to 2017

Considering information about the last 10 years (2003- 2012), the position and growth average for each BRICS country (including the world as well) is: China: 10,45%, India: 7,76%, Russia: 4,73%, world: 3,83%, Brazil: 3,67% and South Africa: 3,46%. All of them have correlated well with the “world” result, except China, with a strong first place position, followed by India (See Figure 2).

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Figure 2 Real GDP Growth BRICS Countries (Annual percent change) 2003- 2012

However, fast growth in economies with a background of instability might not be sustainable. From a statistical point of view, when deciding whether measurements agree with a theoretical prediction, the standard deviation of those measurements is of crucial importance: if the mean of the measurements is too far away from the prediction, then the theory being tested probably needs to be revised. (DeVore, 2005). The following comparison was also done for these economies. (See Figure 3):

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Figure 3 Market Instability (Mean Vs. Standard Deviation) 2003- 2012

From these results it can be determined which country seems to have higher or lower levels of uncertainty. From higher to lower, the order is the following China and India (far away from the rest), then, South Africa, Brazil, and Russia. Almost the same positioning reached in its growth. The new global economic scenario has changed phenomenally in the last decades. Securing a sustained growth in the coming years will be crucial in reducing the level of uncertainty for these countries; therefore, it becomes necessary to implement adequate strategies.

3. National Income Distribution How is income distributed worldwide? (Ortiz and Cummins, 2011). We inhabit a planet in which the top 20% of the population controls over 70% of global revenue. What about BRICS countries? The following is an analysis for each country: (i) distribution of income, reflected in the percentage of shares of income or consumption accruing to portions of the population and ranked by levels (deciles in this paper): highest (more income); lowest (less or no income). (ii) The Gini Index-Lorenz Curve, which represents the distribution of income within a community, plotted with a Lorenz curve, where “0” means perfect equality, and “100” implies perfect inequality (World Bank, 2013). (iii) Poverty; considering the percentage of the population living on less than $2,00 (which covers the $1,25 a day at 2005 international prices). The figure 4 make more completed the analysis, showing graphically the main variables per country during: 1994 -2002, 2003 – 2012 (last decade), and the average. Also, as a visual reminder contrasted with its GDP growth average analyzed before (2003-2012). The data includes all available years, from 1994 to the last available year (each country has different years of information availability).

Figure 4 Comparison between BRICS: Growth / Income Distribution / Gini / Poverty (1994- 2012 or years available)

1. Brazil: The only South American member of the Group, with a population of 196,7 million in 2011 (last year published). There has been some improvement in the incomes distribution, as well, growth of the economy. Considering data from 1990 to 2009; the 20% highest of the population (people with more incomes) controlled: Averages 62,24% of incomes while 20% lowest just 2,38%. The highest deciles (10-20%) have been going down and the lowest (20%) have been going slightly up. More people are joining the middle class. Concerning poverty, it has consistently improved, however moderately; nevertheless, by 2009 they have 10.8% of its population living in poverty. That means a total of 21,2 millions of people. The Gini Index has descended to 6,35 in the same period of time. This country shows the best results in terms of proportion of improvement.
2. China: The Asian giant has recently given so much to talk about in terms of growth, with a population of 1.344,1 million. Contrary to economic growth, not so well results exposed, with data from 1990 – 2005 (last available), the 20% Highest of the population control: Avg. 45%, while 20% lowest just 6,58%. Overall, it looks like the lowest 10%-20% of the population is poorer, and the highest 10%-20% just descended somewhat. The Gini index jumped by 10,5 in the same period. Regarding poverty (one additional year of data - 2009), it is clear that there has been a descent (2,6%), in this country it is equal to aprox. 34,8 millions of people. However, by the last year available it shows 27,2% of its population living in poverty. That means 365,6 millions of people (almost two Brazil).
3. India: Another Asian populated giant. It shows a huge growth and a population of 1.241,5 millions of people. Concerning income distribution: data of: 1994 and 2005 (years available); the proportion is: 20% Highest: Avg. 41,25% and 20% lowest: just 8,8%. There are no significant changes during the time, except that the highest 10-20% of the population (wealthy people) has been receiving more income. The Gini index jumped to 2,56. Poverty levels have improved (based on one more year of data -2010). However, by the year 2010 it had an amazing 68,72% of its population living in poverty. That means 853,2 millions of people (more than China, which has more population).
4. Russia: The largest country in the world, with a population of 143 million. Its income distribution, from 1993 to 2009: The highest 20% control Avg. 47,07% of incomes, while 20% lowest 5,96%. In this economy, each decile is closer to each other. The Gini Index descended: 8,27 points. Poverty has decreased. By 2009 the result for “$1,25 a day” is: 0% and “$2 a day” is: 0,1%. That means 142,9 thousand people. They show the best result in terms of “absolute numbers” in the BRICS countries.
5. South Africa: The newest member of the BRICS group and a country representative of Africa. It had a population of 50,6 million in 2011. Considering data from 1993 to 2009 (last year available), the gap between the highest levels (10-20%) and the rest of the population (48,67 points) is disturbing. Here the proportion is: 20% Highest: 65,85% and 20% Lowest: 2.95%. In terms of poverty, it can be said that it has decreased but not significantly. During sixteen (16) years: 9,7 points. That means that by 2009, approximately 15,8 million of its people (31,3%) still live in poverty.

(Ortiz and Cummins, 2011), while it is true that there is some evidence of progress, it is too slow. We estimate that it would take more than 800 years for the bottom billion to achieve ten percent of global income. Every economy must double its efforts in order to build an integral development agenda in order to improve in the area of social politics, environment, and climate change.

4. Importance of Adding equity in the Development Agenda Inequality also matters to economic growth. In order to ensure that sustainable growth continues, and also, in order to allow other developing countries to join better economy situations, a similar employment-intensive push in the agenda becomes necessary, as well as an international setting favorable to such agenda. Understanding the negative consequences of rising inequality becomes crucial to the progress of the economy of the nations.
1. Lack of equality inhibits growth, In the 1950s, Simon Kuznets argued that income inequality is necessary for the growth of the economy. Supporters of this position advise investing in growth as a first priority because they believe that the benefits will “trickle down” to the poor. However, (Bourguignon, 2004), (Birdsall, 2005), among others, suggests the contrary. (Ortiz and Cummins, 2011), using 131 as sample of countries from 1990 to 2008, it was found that countries with increased levels of inequality experienced slower annual growth per capita GDP (ρ= -0.20). Moreover, the strong negative correlation between high inequality and high growth remains virtually unchanged when restricting the sample to developing countries only. (94 countries) (ρ= -0.19)
2. Inequality generates social and health problems, (Wilkinson and Pickett, 2010) examine the relationship between income inequality and eleven unique health and social problems. They developed the International Index of Health and Social Problems (IHSP). The composite index covers 23 countries and includes the following indicators: number of homicides, imprisonment, infant mortality, life expectancy, math and literacy scores, mental illness, obesity, social mobility, births by teenagers, and trust. They find a strong relationship between high levels of inequality and greater health and social problems (ρ = 0.54).
3. Inequality produces political instability, the sources of political conflict vary from country to country, some causes included: class conflicts, perception of inequality between ethnic, religious or others. (Alesina and PerottI, 1996), among others, argue that inequality can lead to less political stability, and this in turn can lead to sub-optimal investment levels. They present an extensive battery of robustness tests on a cross-section of 70 countries, for the period 1960 – 1985, a two- equation system in which the endogenous variables are: investment in physical capital and a measure of political instability. Their results in sample of 70 countries are quite solid.

Adding equity to the Development Agenda is beneficial and imperative right now, not only because it is correct seeking balance or because is a worthy cause, but also because equity is a guarantee and an innovative strategy for growth and sustainability.

5. Conclusion It is clear that the BRICS countries are at the forefront of the GDP growth worldwide. As a group, considering the last 10 years, the GDP average growth of the BRICS countries is 6,0% and the world´s is 3,83%. Meanwhile, for all of them, the highest concentration of income is controlled by a few people. The highest 20% of the population controlled 52,3% of the income and the lowest 20% controlled just 5,3%. The Gini Index Average is 46, and 41,9% of the population is living in poverty, that is means: 1.255,9 millions of people (approximately 18% of the population of the world). Finding the right balance between equity and growth is required. Mainstreaming equity in the development agenda, striving to achieve the equity/growth balance requires a major overhaul of current decision making. Economy-related choices at both international and national levels have often been made without proper consideration for their distributional impact. If there is a negative social impact, it could be mitigated, but we must be aware that equality and social progress cannot be achieved solely by following this approach. The Implantation of public policies that focused on generating employment and household income, ensuring access to land and assets, as well as infrastructure and services, and enhancing human capital and labour productivity are need as a guarantee and an innovative strategy for growth and sustainability.

References
1] Alesina, A., and Perotti, R. Income Distribution, Political Instability and Investment. European Economic Review, 1996, 40(6): 1203-1228.
2] Birdsall, Nancy. Why Inequality Matters in a Globalizing World. UNI-WIDER, 2005: 6-27.
3] Bourguignon, Francois. The Poverty-Growth-Inequality Triangle. World Bank, 2004: 3-24.
4] DeVore, Jay. L. Statistical and Probability. Thomson Learning, 2005: 36-40. (In Spanish).
5] Ortiz, I., and Cummins, M. Global Inequality: Beyond the botton billon. UNICEF, 2011:7-19, 32-33
6] Sullivan, A., and Sheffrin, S. M. Economics: Principles in action. Pearson Prentice Hall, 2003: 348.
7] Work Bank. GINI Index. World Data Bank, 2013. Online available on April 28, 2013: http://data.worldbank.org/indicator/SI.POV.GINI.
8] Wilkinson, R., and Pickett, K. The Spirit Level: The Spirit Level: Why Equality Is Better for Everyone. Penguin Group, 2010: 200-280.

New Multinational Corporation (MNCs), Major players in the phenomenon. The growth has been remarkable. In 2005, there were only 44 of them on Fortune’s List of the TOP Global 500 firms, in 2010, there were 113 such companies 1 (“Fortune Global 500”, Fortune, July 25, 2011, p. 1F-7).

Many of these multinationals work with natural resources and also new brands with names such as: Arcelik (Turkey), Dilmah (Sri Lanka), HTC (Taiwan), Lenovo (China), Mahindra & Mahindra (India), Modelo (Mexico), Natura (Brazil), Tata Motors and Tata Global Beverages (India) and Savola (Saudi Arabia) whose settled, soon, as strong competitors.

All or the majority of these companies emerge from countries where there is still much economic volatility, political and social uncertainty is the order of the day.

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2003:5,64
2004:7,04

-3,5

B: 1,1
W:-0,6